World’s Apart:Kathleen Madigan & Modeled Behavior

Housing has been down so long that any gain is welcome. But the 1.5% rise in January starts was less positive than meets the eye.

First, economists expected a bigger advance. After all, the mild weather should have allowed builders to break ground on many more projects than in a typical January. Economists at IHS Global Insight warn the building activity pulled forward into the tepid winter months could mean a payback in starts come the spring.

Second, the mix of projects suggests demand for new homes is coming from renters, not buyers. All the increase was in multifamily buildings. Single-family housing starts actually fell 1.0% last month.

For the last few years, housing’s problem has been insufficient demand to clear out the overhang of supply. For whatever reason–lack of downpayment, financing problems, the inability to sell a currently owned house–buyers are still largely missing from the housing equation.

. . .

The Housing Market Index compiled by the National Association of Home Builders and Wells Fargo has increased for five months in a row. A growing share of builders expect sales to pick up over the next six months [although it should be noted that the expected sales index remains far below the readings during the boom years.]

The better expectations are probably based partly on the improvement in the labor markets. Faster job growth will supply more income and confidence to potential buyers.

I am not sure which economists expected a bigger advance, the consensus numbers I saw were in the 670 range versus 699 reported.

More importantly she seems to suggest that the increase coming from multi-family is a “less positive” factor. Its not clear to me why. This is exactly how we expected this to play out.

Lastly the expectations from builders are almost certainly based on orders and inquiries which are rising. Though, the improved job picture helps, its by my lights the change construction that is fueling job growth.

Lets look at construction unemployment

We don’t have seasonally adjusted data but look at the torque on that last trough. Compare to the rest. Its moving down hard.

Consider also the monthly rental income data

Its not only moving up like bullet but at an increase pace

Rental property is like a license to print money and we know a competitive market abhors, well rents.

There is also the rapidly increasing financial room available to households

and for what its worth – which is not too, too much except historical comparison – we can look at housing affordability which breaking ever new highs.

All of those factors are pushing home construction forward.

For some reason, I don’t completely understand, the New York City blogosphere seems highly concerned with the “housing overhang.”

However, existing inventory is not that high

More importantly, its not clear that it matters. Look at inventory in the period from 2001 to 2006.

Now look at Case-Shiller over that same period

Can you see something indicative of a doubling of home prices in the inventory data? If anything there is a slight rise during that period which is co-incident with a rise in sales.

“After all, the mild weather should have allowed builders to break ground on many more projects than in a typical January.”

This doesn’t make alot of sense. It’s one thing to go out shopping on a nice Saturday when if it was cold and snowy you’d stay home, but starting construction on a house in NY just because there’s a warm-spell in mid-Jan is crazy. Putting up a house is not a one-day project, and you can’t get a start going on a few days notice that you’ll have mid-50s weather. If you were planning a house in the northeast, you planned it for spring/summer, and a warm spell won’t change that.

and for what its worth – which is not too, too much except historical comparison – we can look at housing affordability which breaking ever new highs.

Did you see where the St. Louis Fed gets that data from? NAR? NAR has zero credibility. If I read that chart right, the higher the number the more affordable housing is. How do they define affordable? I know what I define as affordable, and housing is far from it.

[…] According to Karl Smith at Modeled Behavior, claims that housing is not really recovering are unfounded. Responding to one such claimant, he says: I am not sure which economists expected a bigger advance, the consensus numbers I saw were in the 670 range versus 699 reported. […]